THE REAL SPITZER STORY

Elliot’s Mess: Spitzer Investigation Tied To Fed Bail Out
By: Nicole Belle on Saturday, March 15th, 2008 at 4:56 PM - PDT

At the time of Spitzer’s resignation, I blogged that something about the investigation didn’t pass the smell test, the Don Siegelman case foremost on my mind. But journalist Greg Palast has made a compelling case tying the Spitzer investigation to a different top story.

While New York Governor Eliot Spitzer was paying an ‘escort’ $4,300 in a hotel room in Washington, just down the road, George Bush’s new Federal Reserve Board Chairman, Ben Bernanke, was secretly handing over $200 billion in a tryst with mortgage bank industry speculators.

Both acts were wanton, wicked and lewd. But there’s a BIG difference. The Governor was using his own checkbook. Bush’s man Bernanke was using ours.

This week, Bernanke’s Fed, for the first time in its history, loaned a selected coterie of banks one-fifth of a trillion dollars to guarantee these banks’ mortgage-backed junk bonds. The deluge of public loot was an eye-popping windfall to the very banking predators who have brought two million families to the brink of foreclosure.

Up until Wednesday, there was one single, lonely politician who stood in the way of this creepy little assignation at the bankers’ bordello: Eliot Spitzer.

Who are they kidding? Spitzer’s lynching and the bankers’ enriching are intimately tied.

How? Follow the money. Read on…

The whole Bear Stearns bail out is hilarious when you consider how horrified these ‘free market’ proponents are at the thought of say, socialized medicine, but barely bat an eye at socialized banking. Privatize profits and nationalize losses, anyone? Meanwhile, decades of Republican economic strategy has brought us to a recession, if not teetering on the edge of a depression (The similarities in the economy of the 1920s and today are there for the finding). What will be telling is what kind of bonuses will be handed out to Bear Stearns executives in light of this massive failure of management.

A BLAST FROM THE PAST : THOSE WERE THE DAYS MY FRIEND ;)

 

DC Madam scandal widens: Cheney, Giuliani, Abramoff by Gustav Wynn

The media black-out on the scandal involving DC Madam Deborah Jeane Palfrey is surprising in light of the lack of lawsuits being leveled at the Wayne Madsen Report website. Instead of Dick Cheney and the recently resigned Randall Tobias filing libel and slander lawsuits against the site, we see only their silence. Moreover, the Wayne Madsen site has been continually expanding on this story - making this either the scoop of the century, or the biggest fairy tale in DC history.

Consider this: WMR is now reporting specifically who at ABC News' 20/20 became fully aware of not only Cheney's use of the escort service, but dozens more "high profile" names - culled from the phone records only since 2002 (the escort services full records go back to 1994). ABC's crack team was reportedly gagged by their bosses after concerned calls from the White House. This would be amazing if true, yet no White House denial has been forthcoming as of this writing...

WMR also reports that the DC Madam first came under DOJ scrutiny after US Attorney Thomas DiBiagio got a crooked cop Ed Norris (a pal of NYC Police Commish Bernard Kerik) to squeal on the escort service in May 2004, admitting the service had received illicit payouts from official police funds. Less then a year after Norris was hired as State Superintendent by Maryland Governor Robert Ehrlich, another US Attorney, Johnathan Luna, who had also investigated Norris and Kerik back in NY turned up murdered in December of 2003. Luna at the time was working under DiBagio on the DC Madam case, finding Ehrlich and lobbyist Jack Abramoff were DC Madam clients. Then, DiBiagio became the first U.S. Attorney fired by the Justice Department after Bush's re-election in 2004. Vastly underreported, DiBagio's probe had linked Republican governor Ehrlich to Bob Ney, Tom DeLay, Duke Cunningham and others but the investigation died when he was fired.

It wasn't until Palfrey attempted to leave the country and sell her house that interest in the DC Madam was revived. A warrant eventually seized her assets. WMR reports that one DC law firm representing Saudi clients turned up on the phone list and that another patron on the list was a client of the law firm of Bracewell & Giuliani. Though Madsen can be a little quick to speculate, he stands by his claim, purportedly confirmed by three different sources, that Cheney's beltway phone number appeared in the records numerous time when he was CEO of Halliburton. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

No major media has picked up the story, though David Letterman mentioned it in a recent monologue, quipping that Cheney paid the hooker $2 billion dollars. Washington Post did cover an aspect of the story but omitted any mention of Cheney.

UNITED STATES OF AMNESIA: DICK'S D.C. MADAM PROBLEM

http://www.opednews.com/articles/opedne_gustav_w_080311_united_states_of_amn.htmf  

Too Big to Bail
 
The Fed's Wall Street Dilemma
 
By Pam Martens
 
Americans learned two new truths last week from the Bush Administration's version of Life's Little Instruction Book: if you're a Wall Street miscreant you're thrown a lifeline; if you're a Wall Street crime fighter you're thrown a land mine.
http://www.informationclearinghouse.info/article19555.htm

Rescue Me: A Fed Bailout Crosses a Line
March 16, 2008, New York Times
http://www.nytimes.com/2008/03/16/business/16gret.html

What are the consequences of a world in which regulators rescue even the financial institutions whose recklessness and greed helped create the titanic credit mess we are in? Will the consequences be an even weaker currency, rampant inflation, a continuation of the slow bleed that we have witnessed at banks and brokerage firms for the past year? Or all of the above? Stick around, because we'll soon find out. And it's not going to be pretty. Agreeing to guarantee a 28-day credit line to Bear Stearns, by way of JPMorgan Chase, the Federal Reserve Bank of New York conceded last Friday that no sizable firm with a book of mortgage securities or loans out to mortgage issuers could be allowed to fail right now. It was the most explicit sign yet of the Fed's "Rescues 'R' Us" doctrine that already helped to force the marriage of Bank of America and Countrywide. But why save Bear Stearns? "Why not set an example of Bear Stearns, the guys who have this record of dog-eat-dog, we're brass knuckles, we're tough?" asked William A. Fleckenstein, president of Fleckenstein Capital in Issaquah, Wash., and co-author with Fred Sheehan of Greenspan's Bubbles: The Age of Ignorance at the Federal Reserve. After years of never allowing any of our financial institutions to fail, they have become so enormous that nobody will be allowed to sink beneath the waves. Otherwise, a tsunami would swamp the hedge funds, banks and other brokerage firms that remain afloat. If Bear Stearns failed, for example, it would result in a wholesale dumping of mortgage securities and other assets onto a market that is frozen and where buyers are in hiding. This fire sale would force surviving institutions carrying the same types of securities on their books to mark down their positions, generating more margin calls and creating more failures.

Note: This excellent article should be read in its entirety by anyone who wants to understand the impending financial meltdown and the government's response to it.

A Bailout. For Everyone.
March 12, 2008, Washington Post
http://www.washingtonpost.com/wp-dyn/content/story/2008/03/11/ST2008031103060.html

Last week, it was a $200 billion cash-for-bond swap for the banks. This week, it was a $200 billion bond-for-bond swap for the big investment houses. If they keep this up, pretty soon you'll be able to walk into any Federal Reserve bank and hock that diamond brooch you inherited from Aunt Mildred. Forget all that nonsense about the Bernanke Fed being too timid or behind the curve. In the face of what is turning into the most serious financial market crisis since the Great Depression, the Fed has been more aggressive and more creative in using its limitless balance sheet -- in effect, its ability to print money -- than at any time in history. We can argue till the cows come home about whether this is a bailout for Wall Street. It is -- but only to the extent that it is also a bailout for all of us, meant to prevent a financial and economic meltdown that drags everyone down with it. In broad strokes, we're going through a massive "de-leveraging" of the economy, wringing out trillions of dollars of debt that had artificially driven up the price of real estate and financial assets, and, more generally, allowed Americans to live beyond their means. Fed officials warn that this de-leveraging is nowhere near finished. It's anyone's guess how long this credit crunch will last, but the chances are that we'll have several more market meltdowns and Fed rescues before it's over, probably in the fall. Until then, the dollar will continue to get hammered and stocks will continue their fitful decline. And if the last two financially induced recessions are any guide, it will be well into 2009 before the economy hits bottom, followed by a couple of years of slow growth and "jobless" recovery.

Note: The title of this article is quite revealing. A bailout for the big banks is considered to be a bailout for everyone. If you believe this, we most highly encourage you to read our powerful two-page summary of the banking cover-up available here.

THE TECHNOLOGY THAT TOPPLED SPITZER--SOMEBODY'S WATCHING YOU TOO

http://www.technologyreview.com/Infotech/20435/?nlid=947

Why Eliot Spitzer was assassinated / The predatory lending industry has a partner in the White House

Most people have the sense that there was something bizarre and surreal about the sudden coordinated FBI and US news media attack on New York Governor Eliot Spitzer.

After all, unproven allegations about how he may have chosen to spend his own money on his own time hardly seems a worthy subject of front page news for a week straight.

Meanwhile, the US news media remained characteristically clueless about why Spitzer was taken out.

It's simple.

He had the goods on Bush adminstation colusion with predatory lenders and was preparing a case that would have tied the administration directly to wide spread fraud and criminality in the lending business.

Full details here...http://www.brasschecktv.com/page/291.html

P.S. No one else was covering this story, so we did.

You won't find a video about this anywhere else on the Internet.

This is important info, don't you agree?

If the combined forces of ABC, CBS, CNN,NBC, Fox, the New York Times and the Washington Post can't do basis reporting like this,  it's up to you the reader to spread the word. - Brasscheck

Mortaging America's future
for a quick buck

It's one of the most amazing displays of journalistic incompetence and malpractice in recent memory.

The US news media failed to draw the obvious connection between the bizarre federal law enforcement investigation and leak campaign about the private life of New York Governor Spitzer and Spitzer's all out attack on the Bush administration for its collusion with predatory lenders.

While the international credit system grinds to a halt because of a superabundance of bad mortgage loans made in the US, the news media failed to cover the details of Spitzer's public charges against the White House.

Yet when salacious details were leaked about alleged details of Spitzer's private life, they took that information and made it the front page news for days.

To the 9/11 fiasco, the Iraq War, the travesty of the federal response to Hurricane Katrina, and the shredding of the US Constitution, we can now add a deliberate and reckless undermining of the credit and banking system of the US to its list of "accomplishments."

Now keep in mind that all this hoopla is a side show. The real story is about Bush & the feds providing a huge payday for crooked banks while 2 million families will also loose their houses to the same lonesharks. Yes, those sick f@*k do get their money back and their victim's houses too, thanks to King George !

The dirty lowdown is right here in MP3 format at the bottom of the page…

Greg Palast on Corporate Watch Radio [28:25m] 

http://www.gregpalast.com/elliot-spitzer-gets-nailed/ 

Now for da nitty gritty ;)

Infamous GOP Dirty Trickster and Sexual Swinger Roger Stone Now Revealed to be at Ground Zero of Eliot Spitzer's Undoing. This Connection was First Made on BuzzFlash Nearly Two Weeks Ago. Stone Would Know About Kinky Sex, Because He Has Been Shown to Engage in It With His Wife and Others in the Past.

You might not have heard of sleaze ball GOP operative Roger Stone, a sort of combination of Lee Atwater and Karl Rove with a penchant for swinging -- of the sexual kind.

Over the years, he's shown up at the center of a lot of controversial Republican efforts to bring down Democrats in questionable ways. And that's why, it piqued our interest to read these paragraphs from a New York political reporter about a phone call with Stone concerning the unusual federal government prostitution sting operation (which ostensibly began as a money laundering investigation) against Eliot Spitzer: <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />"I didn't make him go to a prostitution ring," said the most famous and ruthless Republican dirty trickster who still walks the earth. "He did that all on his own."

Stone said that even before I asked if his hand was somehow in Spitzer's latest trouble. I figured, somehow or another, it had to be.

"No comment on that," Stone said. "I will say I knew it was coming. That's why I wasn't too upset about the results of the special election," where a Democrat grabbed a supposedly safe Republican State Senate seat, leaving Democrats just one vote shy of control.So an infamous Republican dirty trickster who now heads a highly offensively named and controversial anti-Clinton 527 called Citizens United Not Timid (okay if you're slow, put the four capital letters together -- and we are not making this up) happened to know in advance about the Bush partisan DOJ's unusual takedown of a rising Democratic governor over sex. And he wasn't just any governor, he was the head of the Empire State who had alienated Wall Street by aggressively taking on white collar crime when he was the New York AG.

In fact, Stone may have a larger role in the pursuit of Spitzer since he has worked for the Republican opposition in New York and was even fingered, if you can believe how low he'll go, trying to anonymously threaten Spitzer's father over the telephone.

Let's put aside the bottom feeder swamp sludge tactics for a moment. Because what makes Stone particularly hypocritical about his efforts to bring down Spitzer -- and whatever relationship, if any, he had to the DOJ investigation -- is his hypocrisy about sexual morality.

In September 2003, BuzzFlash wrote a news analysis asking this question: "Where Did A Republican Party Operative Accused Of Placing 'Swinging Couple' Ads Get $150,000 During The 2000 Recount To Finance A Campaign To Oust Florida Supreme Court Justices?" (The ubiquitously devious Stone was assisting the Bush cabal with stealing the 2000 Florida election.) As we noted then, Stone, "in 1996, was forced to resign his consulting position with presidential candidate Bob Dole after two supermarket tabloids reported that he and his wife, Nydia, had advertised on the Internet and in 'Swing Fever' magazine for couples interested in engaging in group sex. Yes, dear readers, it is. For the record, Stone claimed he had been set up, though he acknowledged the Internet advertisements were paid for with his credit card."

Another Web site is more blunt, "We've written about the GOP operative Roger Stone before, and how the charmingly amoral hedonist rolls from S&M sex party to swinger gathering in between calling Hillary Clinton vulgar names."

Ah, the stench of Republican sexual perversity emanates strongly from Roger Stone, and although we can't prove he had a role to play in the takedown of Spitzer, we'd bet better than even odds that he did.

And that is why he is the BuzzFlash GOP Hypocrite of the Week. A Republican swinger who parties wild is crowing about a prostitution scandal downfall of a Democratic Governor who took on the crooks of Wall Street. As you can understand from this brief article, it is Stone, after all, who is the real prostitute in this story. Remember our motto: So many Republican hypocrites, so little time.

I’m still totally flabbergasted on how easy the Rovian GOP is doing what it dam pleases with America…

 <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Now if it was only the fact that we socialize the losts but privatize the profits, that is at the hearth of all this bail out hoopla, that will keep on giving for generations.

 

America is being taken to the cleaners while big media is cheering on and our so called leaders drooling over their retirement plan which will consist in working for the man.

 

The revolving door between Big Corp & government is always open and seats are interchangeable. Problem is…WE THE PEOPLE are paying for this pathetic cronies economy.

 

Here’s how it worked: The Grinning Family, with US average household income, gets a $200,000 mortgage at 4% for two years. Their $955 monthly payment is 25% of their income. No problem. Their banker promises them a new mortgage, again at the cheap rate, in two years. But in two years, the promise ain’t worth a can of spam and the Grinnings are told to scram - because their house is now worth less than the mortgage. Now, the mortgage hits 9% or $1,609 plus fees to recover the “discount” they had for two years. Suddenly, payments equal 42% to 50% of pre-tax income. The Grinnings move into their Toyota.

 

MEANWHILE…

Carlyle Capital went bankrupt. Who? That’s Carlyle as in Carlyle Group. James Baker, Senior Counsel. Notable partners, former and past: George Bush, the Bin Laden family and more dictators, potentates, pirates and presidents than you can count.

The Fed had to act. Bernanke opened the vault and dumped $200 billion on the poor little suffering bankers. They got the public treasure – and got to keep the Grinning’s house. There was no ‘quid’ of a foreclosure moratorium for the ‘pro quo’ of public bailout. Not one family was saved – but not one banker was left behind.

Every mortgage sharking operation shot up in value. Mozilo’s Countrywide stock rose 17% in one day. The Citi sheiks saw their company’s stock rise $10 billion in an afternoon.

And that very same day the bail-out was decided – what a coinkydink! – the man called, ‘The Sheriff of Wall Street’ was cuffed. Spitzer was silenced.

This is like some old time Hollywood Western movie. I think that's why the American people are so lax in doing something about it, they just can't believe their leaders could be so crass. This robbery, this looting of our country is on such a massive scale, it's unreal.

Tricky Dicky's legacy of 'dirty tricks' seems to be never-ending. How easily the good guys get targetted and brought down, how easily the media tries and convicts them on the air. How easily even 'rogue reporters' actually buy it, too.

Dear René,<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /> 

The worst thing is we don’t even seem to be learning from our mistakes.

 Remember the US Savings and Loan crisis of the 1980s and 1990s was the failure of several savings and loan associations in the United States. More than 1,000 savings and loan institutions (S&Ls) failed in what economist John Kenneth Galbraith called "the largest and costliest venture in public misfeasance, malfeasance and larceny of all time."[1] The ultimate cost of the crisis is estimated to have totaled around USD$160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government -- that is, the U.S. taxpayer, either directly or through charges on their savings and loan accounts-- [2], which contributed to the large budget deficits of the early 1990s. The resulting taxpayer bailout ended up being even larger than it would have been because moral hazard and adverse-selection incentives compounded the system’s losses. [3]  

 

All brought to you (us) by the same cabal of GOP & Bush family croonies… 

 

Remember Enrun ?

 

Remember Vietnam ?

Remember 9-11 ?

 

Well that one they make sure we will never forget … hum… I wonder why ?

 

Even our friends are watching and scratching their collective heads in absolute dismay of what has been done to this country ! Americans don’t watch the BBC, or any news from outside US big media, who by now, everyone should realize is nothing but a zombie cheer leader outfit, but anywhoo…

 

 Our Friends Are Trying To Tell Us Something

http://georgewashington.blogspot.com/2008/02/your-friends-are-trying-to-tell-you.html

 

But that is all together a different story… or it is ?

Consolation prize is the fact that this story is as old than humanity... 

"The tyrant, who in order to hold his power, suppresses every superiority, does away with good men, forbids education and light, controls every movement of the citizens and, keeping them under a perpetual servitude, wants them to grow accustomed to baseness and cowardice, has his spies everywhere to listen to what is said in the meetings, and spreads dissension and calumny among the citizens and impoverishes them, is obliged to make war in order to keep his subjects occupied and impose on them permanent need of a chief." - Aristotle

 

THE ORIGINAL SIN

Predatory lenders' partner in crime

How the Bush administration stopped the states from stepping in to help consumers.

Dateline: Monday, March 24, 2008

by Eliot Spitzer, for the Washington Post

[Note: On February 14, the Washington Post published an op-ed piece by New York Governor Eliot Spitzer, charging that the Bush administration actively colluded with banks' predatory lending practices and that the federal government took unprecedented legal action to prevent states from legislating against predatory lending. Three weeks later, Spitzer was very publicly arrested for hiring a call girl.]

PREDATORY LENDERS' PARTNER IN CRIME, by Eliot Spitzer. How the Bush administration stopped the states from stepping in to help consumers.

http://www.straightgoods.ca/ViewFeature8.cfm?REF=175

Several years ago, state attorneys-general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive "teaser" rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on homebuyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.

In 2003, an obscure federal agency promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks.

Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.

Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys-general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.

What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.

Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.

Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.

In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.

But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.

Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.

When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys-general and anyone else on the side of consumers.

The writer is governor of New York.

Related addresses:

URL 1: www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR20080213027...
URL 2: www.gregpalast.com/elliot-spitzer-gets-nailed/
URL 3: www.brasschecktv.com/page/291.html

Homeowners Plan Demonstration at NYC Offices of Bear Stearns, JPMorgan Chase to Protest Government Bailout

Hundreds of homeowners are planning a demonstration today in Manhattan in front of the corporate offices of Bear Stearns and JPMorgan Chase to protest the “taxpayer bailout…and refusal of the government and Federal Reserve to provide real solutions for the millions of homeowners at risk of foreclosure.” We speak with Bruce Marks, the founder of the Neighborhood Assistance Corporation of America that is organizing the demonstration.

Neighborhood Assistance Corporation of America, or NACA, is a group that represents thousands of homeowners and has been fighting predatory lending practices for two decades. They will be protesting today in front of the corporate offices of JPMorgan Chase and Bear Stearns here in New York. They’re demanding a moratorium on foreclosures and that banks roll back interest rate increases.

Bruce Marks is the founder and CEO of NACA. He was named Bostonian of the Year by the Boston Globe newspaper in 2007 for his fight on behalf of homeowners against Wall Street.  

BRUCE MARKS: Well, this is a corporate bailout. This is outrageous, because what you’re dealing with, you’re dealing with the symptoms, and you’re bailing out the wealthiest people in the country, when the fact—if you deal with the cause, which is the homeowners losing their homes for mortgages that are structured to fail, because no one can afford an interest rate of 12, 14 percent. So, people were qualified for an interest rate that was affordable—six, seven percent—but these are strangulation arms that says, I can pay that for a year or two, but then they double to 12 and 14 percent. So, clearly, we have millions and millions of homeowners who are at risk of losing their homes, not because of life circumstances, not because they lost their job or they had a personal crisis, but because the mortgage is pushing them into foreclosure. And the one that really orchestrated it more than any other investment firm was Bear Stearns.

AMY GOODMAN: How?

BRUCE MARKS: Because they’re the ones that put it together. You know, you can’t—if you’re a broker or a lender, you can’t do lending unless you have the capital, if you have access to credit. And it was Bear Stearns who was the most aggressive of getting the investors out there and packaging these mortgages together so that they would buy them from the New Centuries, and New Century was the biggest lender in the country, and yet they don’t exist. They didn’t exist five years ago; they don’t exist now, because they’re really put together by these investment bankers. And these mortgages are a defective product.

So what they put together as mortgage-backed securities was really never around homeownership; it was really about generating billions and billions of dollars in fees for the brokers, the lenders, the investment bankers and the rating industries. And now we’re bailing them out. So, if we’re about true business, where you take risk and you profit from it, and if you’re wrong on your risk, you should lose. But now the taxpayers are really paying $30 billion, and it’s outrageous what that is, because they’re swapping $30 billion for these securitizations that we know are not worth the par value that they’re saying that they’re worth. So it’s really a grant to Bear Stearns and basically to JPMorgan Chase, who is getting a fire-sale price for buying Bear Stearns.

AMY GOODMAN: Bruce Marks, what should happen?

BRUCE MARKS: What should happen is that if we’re going to have to bail out the Bear Stearns, which we disagree—you shouldn’t use taxpayer money for that, but if that’s going to happen, there’s got to be a quid pro quo. You’ve got to work with—deal with the cause of the problem. And the cause of the problem is homeowners losing their homes with a defective mortgage. So you have to stop the resets, stop the interest rate increases, roll them back to the initial rate that people were qualified for, and put a moratorium on foreclosures, and then make sure that you can restructure those loans, meaning to permanently reduce the interest rate to a mortgage payment that the homeowners can afford.

And through NACA, we’re able to do thousands—we’ve done thousands of those loans for the borrowers. So what we say is, we look at what someone can afford, their net income, their expenses, determine what mortgage payment they can afford, and we have agreements with Countrywide and with Citigroup and others that they restructure the loans to make it affordable.

AMY GOODMAN: How have you been able to do this for thousands of homeowners?

BRUCE MARKS: Well, we did it through—we had to get their attention, so it’s through the advocacy. You know, I mean, we’ve got over 550,000 members around the country. NACA is a non-profit advocacy organization and mortgage broker. So if you come through NACA, you can get a mortgage that is the best deal out there. So it’s at no down payment and no closing cost and no fees, and it’s always one product. And today’s rate is five percent fixed, thirty-year fixed. So anybody can get that and go to our website, naca.com. But it’s through the advocacy.

So the protest today at 12:00 in front of the Bear Stearns and the JPMorgan corporate centers is going to be “stop the bailout, work with the homeowners to keep them in their homes,” because only through demonstrations and protest that can we do that. So we’re asking anybody, if you’re at risk of losing your home, come down today to the corporate center at JPMorgan Chase and join in the protest. Do the sit-ins. Let’s take them on and say to Secretary Paulson, say to the government: stop bailing out the people, the predators, who created the problem and profited from the problem.

AMY GOODMAN: Their offices are at 47th and Park Avenue?

BRUCE MARKS: Yes.

AMY GOODMAN: You wrote a piece in the Boston Globe called “Lenders Should Bail Out Consumers.” How?

BRUCE MARKS: Because they’re the ones—the lenders are the ones, and investment bankers are the ones that—they created the problem. They profited from the problem. And remember, they provided billions of dollars in bonuses to their executives. So the way that they solve it is to restructure the loans, is to say let’s go back and do the lending the way it should have been done the first time: determine what someone can afford, lock in an interest rate and a payment over the remaining term of the loan—go back and restructure them the way it should have been done.

AMY GOODMAN: Do you see any of the presidential candidates addressing this issue satisfactorily?

BRUCE MARKS: Well, you know, you will see Hillary out there saying that, you know, that they should do the moratorium, you know, on the foreclosures. So you’re starting to see that. And this is going to be, is becoming and is going to be the number one issue in this country in the political debates, in the discussions that are out there, because, you know, now this administration has really endorsed corporate socialism, you know, that now we’ve got the issue that they don’t allow corporations to fail by their bad judgments. So the fact of the matter is, they’ve opened up that box that says now let’s do the right thing for the homeowners, hardworking people. So the fact of the matter is, we’ve got millions of people at risk of losing their homes, and it’s only going to get worse.

AMY GOODMAN: I want to thank you for being with us.

BRUCE MARKS: Thank you.

Watch the interview…
http://www.democracynow.org/2008/3/26/homeowners_plan_demonstration_at_nyc_offices

The continuing story off how america is taken to the cleaners without a glitch...

CORPORATE INSIDERS SMILE AS AVERAGE AMERICANS GO UNDER AND BURN

http://www.nytimes.com/2008/03/23/business/23stra.html?ref=business

ABOUT BEAR STEARNS CAYMAN ISLAND FUNDS

http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=awRQv0XawGk0

My comment: As the financial system crashes and burns, the corporate insiders orchestrating the cataclysm have their funds safely tucked away offshore. When the dollar is completely worthless, they can convert those funds to Euros, Yuan, whatever and come out smelling like a rose.

INFLATION IS NOW IN HEART ATTACK TERRITORY

http://www.atimes.com/atimes/Global_Economy/JC28Dj02.html

TRUCKERS THREATEN NATIONWIDE STRIKE

http://www.abs-cbnnews.com/storypage.aspx?StoryId=113184

HOW DIESEL IS STRANGLING ENTREPRENEURS

http://money.cnn.com/2008/03/27/news/economy/diesel_impact/index.htm?postversion=2008032712

OIL AND YOUR FOOD:GAS PRICES AFFECTING FARMERS

http://www.kswo.com/Global/story.asp?S=8068292&nav=menu495_1

"To additionally cut down on costs, farmers must cut back on cultivating fields, running tractors and trailers as little as possible - sometimes not at all."

LOAD SHEDDING--ENERGY SHORTAGES WORLDWIDE

http://www.energybulletin.net/42030.html

"Energy shortages are now so frequent across the world there is a new web site devoted to keeping track of them all."

CRUDE OIL SURGES AFTER BASRA PIPELINE BOMBING

http://www.timesonline.co.uk/tol/news/world/iraq/article3631718.ece

WALL ST. NOW LOOKS EVEN WORSE

http://dailybriefing.blogs.fortune.cnn.com/2008/03/27/wall-streets-ship-of-fools/

HOME BUILDER PROFITS DISAPPEARING

http://money.cnn.com/video/#/video/news/2008/03/27/news.harlow.032708.homes.cnnmoney

IRVINE, CALIFORNIA: SUBPRIME'S GHOST TOWN

http://money.cnn.com/2008/03/27/news/economy/irvine_subprime/index.htm?postversion=2008032714

Why the Bush Administration "Watergated" Eliot Spitzer by F. William Engdahl

Global Research, March 18, 2008

The spectacular and highly bizarre release of secret FBI wiretap data to the New York Times exposing the tryst of New York state Governor, Eliot Spitzer, the now-infamous "No.9," with a luxury call-girl, had less to do with the Bush Administration’s pursuit of high moral standards for public servants. Spitzer was likely the target of a White House and Wall Street dirty tricks operation to silence one of its most dangerous and vocal critics of their handling the current financial market crisis. A useful rule of thumb in evaluating spectacular scandals around prominent public figures is to ask what and who might want to eliminate that person. In the case of Governor Eliot Spitzer, a Democrat, it is clear that the spectacular "leak" of government FBI wiretap records showing that Spitzer paid a high-cost prostitute $4,300 for what amounted to about an hour’s personal entertainment, was politically motivated. The press has almost solely focused on the salacious aspects of the affair, not least the hefty fee Spitzer apparently paid. Why the scandal breaks now is the more interesting question. Spitzer became Governor of New York following a high-profile record as a relentless State Attorney General going after financial crimes such as the Enron fraud and corruption by Wall Street investment banks during the 2002 dot.com bubble era. The powerful former head of the large AIG insurance group, Hank Greenburg was among his detractors. He made powerful enemies by all accounts. He was bitterly hated on Wall Street. He had made his political career on being ruthless against financial corruption. Most recently, from his position as Governor of the nation’s second largest state, and home to its financial industry, Spitzer had begun making high profile attacks on the complicity of the Bush Administration in covertly arranging bailout if its Wall Street financial friends at the expense of ordinary homeowners and citizens, paid all with taxpayer funds. Curiously, Spitzer, who had been elected governor in 2006 defeating a Republican by winning nearly 70 percent of the vote, has been not charged in any crime. However, the day the scandal broke New York Assembly Republicans immediately announced plans to impeach Spitzer or put him on public trial were he to refuse resignation. Spitzer could be asked to testify in any trial involving the Emperors Club prostitution ring. But so far he hasn’t been charged with a crime. Prostitution is illegal in most US states, but clients of prostitutes are almost never charged, nor are their names usually leaked in a case in process. The Spitzer case is in the hands of Washington and not state authorities, underscoring the clear political nature of the Spitzer "Watergate." The New York Times said Spitzer was an individual identified as Client 9 in court papers filed last week. Client 9 arranged to meet with "Kristen," a prostitute who officially charged $1,000 an hour, on February 13 in a Washington hotel. Whatever transpired, Spitzer paid her $4,300, according to the official documents. The case is clearly political when compared with more egregious recent cases involving Republicans. Republican Mark Foley was exposed propositioning male interns in Congress and Rudolph Giuliani was discovered cheating on his wife, but no or few Republican calls for resignations were heard. Why the attack now? Spitzer had become increasingly public in his blaming the Bush Administration for the nation’s current financial and economic disaster. He testified in Washington in mid-February before the US House of Representatives Financial Services subcommittee on the problems in New York-based specialized insurance companies, known as "monoline" insurers. In a national CNBC TV interview the same day, he laid blame for the crisis and its broader economic fallout on the Bush Administration. Spitzer recalled that several years ago the US Office of the Comptroller of the Currency went to court and blocked New York State efforts to investigate the mortgage activities of national banks. Spitzer argued the OCC did not put a stop to questionable loan marketing practices or uphold higher underwriting standards. "This could have been avoided if the OCC had done its job," Spitzer said in the interview. "The OCC did nothing. The Bush Administration let the housing bubble inflate and now that it's deflating we're dealing with the consequences. The real failure, the genesis, the germ that has spread was the subprime scandal," Spitzer said. Fraudulent marketing and very low "teaser" mortgage rates that later ballooned higher, were practices that should have been stopped, he argued. "When mortgages are being marketed, there is a marketplace obligation to ensure the borrower can afford to pay back the debt," he said. That TV interview was only one instance of Spitzer laying blame on the Bush Republicans. On February 14, Spitzer published a signed article in the influential Washington Post titled, "Predatory Lenders' Partner in Crime: How the Bush Administration Stopped the States From Stepping In to Help Consumers." That article, laying clear blame on the Administration for the development of the sub-prime crisis, appeared the day after his ill-fated tryst with the prostitute at the Mayflower Hotel. Just a coincidence? Spitzer wrote, ""In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act pre-empting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks." In his article Spitzer charged, "Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which he federal government was turning a blind eye." Bush, said Spitzer right in the headline, was the "Predator Lenders' Partner in Crime." The President, said Spitzer, was a fugitive from justice. And Spitzer was in Washington to launch a campaign to take on the Bush regime and the biggest financial powers on the planet. Spitzer wrote, "When history tells the story of the sub-prime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners the Bush administration will not be judged favourably." With that article, some Washington insiders believe, Spitzer signed his own political death warrant.   F. William Engdahl is the author of Seeds of Destruction, the Hidden Agenda of Genetic Manipulation  recently released by Global Research. He also the author of A Century of War: Anglo-American Oil Politics and the New World Order, Pluto Press Ltd.. To contact by e-mail: info@engdahl.oilgeopolitics.net.  William Engdahl is a Research Associate of the Centre for Research on Globalization (CRG). His writings can be consulted on www.engdahl.oilgeopolitics.net and on Global Research.

The Subprime and Credit Crisis

FINANCIAL MELTDOWN AND THE MADNESS OF IMPERIALISM

by Raymond Lotta

The past 10 days will be remembered as the time the U.S. government discarded a half-century of rules to save American financial capitalism from collapse.”

—David Wessel, economics editor, Wall Street Journal, March 27, 2008

“Be greedy when others are fearful.”

—Warren Buffet, leading investment capitalist, quoted by The Economist, April 5, 2008

[To the possessor of money capital] “the process of production appears merely as an unavoidable intermediate link, as a necessary evil for the sake of money-making. All nations with a capitalist mode of production are therefore seized periodically by a feverish attempt to make money without the intervention of the process of production.”

—Karl Marx, Capital, Volume II, “The Circuit of Money Capital”

The U.S. economy is experiencing the most wrenching financial turmoil since the Great Depression of the 1930s. Global markets have been reeling—as massive loans have turned bad, speculative bubbles have popped, and giant financial institutions have tottered.

Financial turbulence originating in the U.S. has slowly expanded and worsened. There is now a global credit crisis. Banks and financial institutions are weighed down by huge losses caused by “non-performing loans.” Lending channels are choked up, as lenders are being called to pay back their loans, to clean up their balance sheets, and fearful that they are “throwing good money after bad” and won’t be paid back. There is real danger of a breakdown of the financial system. The new president of the International Monetary Fund has stated that the current turmoil poses the greatest financial crisis since the 1930s.1

The U.S. has been at the center of what is now a global financial storm. Bear Stearns, one of the largest and oldest investment banks in the U.S., collapsed in mid-March. The Federal Reserve Bank—which regulates and lubricates the U.S. banking system, and which also plays a special role in the world capitalist economy—has stepped in on an unprecedented scale.

The Federal Reserve took responsibility for $30 billion of basically worthless assets held by Bear Stearns. This paved the way for another financial titan, JP Morgan Chase, to take over the firm. In addition, the Federal Reserve has injected huge amounts of funds into the financial system to ward off additional bank failures and to restore international confidence in the U.S. economy…and to prevent the financial crisis from becoming a total financial breakdown.

Fortune magazine in its April 14 issue analyzes the stakes this way:

“The fear—a justifiable one—is that if one big financial firm fails, it will lead to cascading failures throughout the world. Big firms are so interlinked with one another and with other market players that the failure of one large counterparty, as they’re called, can drag down counterparties all over the globe. And if the counterparties fail, it could down the counterparties’ counterparties, and so on.”2

PART I. A FIRST CUT: UNFOLDING OF THE CRISIS

The financial tornado gathered force in the spring of 2007, starting in the housing sector. The housing boom of the last few years was a boom in mortgage finance. Lenders, and these were not neighborhood finance companies or street-corner usurers but big corporate financial giants, were seeking to make big profits from their ability to tap into foreign capital flooding into the U.S. over the last decade. The Federal Reserve accommodated and encouraged this by keeping interest rates low.

A. Subprime Lending

Enter the world of subprime lending. Subprime loans are loans made to borrowers who would not qualify for a prime mortgage—because they might have “bad credit histories,” etc. And these loans were aggressively marketed, pushed on people through all kinds of deceitful means, with Black and Latino households disproportionately targeted and victimized (see Revolution, “Subprime Mortgage Crisis,” April 13, 2008).

The originators of these subprime loans, along with various financial middle-men, then “securitized” these loans. This means they combined these loans into larger groups of loans, turned them into complex financial products, and then sold them on financial markets. They sought to maximize fees and to “transfer risk” by quickly selling off these loans to other banks and institutional investors (like mutual and pension funds, university endowments, etc.).

But as housing prices turned down and as interest rates went up, homeowners (or those who thought they were homeowners) found themselves strapped with adjustable mortgages requiring larger payments. And many could not afford payments. This triggered a wave of defaults. Investors and institutions that had purchased these mortgage securities (loans that had been grouped into bonds returning interest) found themselves with billions of dollars of near worthless assets. The financial insurers of these loans, yet another layer of “financial middle-men,” could not cover the risks and damage.

B. Global Financial Shocks

In the summer of 2007, fears of big financial losses caused stock market indexes around the world to plummet, including those in the rapidly growing regions of the Third World.

A financial contagion was taking hold.

Over a trillion dollars of funds from around the globe—with much of this from Asia and oil-exporting countries—were invested in the U.S. subprime market. The collapse in the value of mortgage and credit instruments originating in the U.S. weakened the financial balance sheets of banks and other overseas holders of these investments and set off tremors. For instance, in Great Britain, there was a run on the Northern Rock bank; a German bank required a bailout; and a leading French bank was hit hard.

At the same time, financial institutions in the U.S. and elsewhere holding securities of crumbling or dubious value sought to strengthen their overall financial positions. They not only had to “write down,” that is, greatly reduce the value of the bad (“nonperforming”) loans they held. They also had to sell off “healthier” holdings in other parts of the world (investments unrelated to the subprime activities) in order to meet immediate financial commitments. And these sell-offs have had their own destabilizing global repercussions. This was especially the case last year in the stock markets of the Third World.

C. New Dangers and New Risks

By March 2008, the prices of stock of the big Wall Street players involved in this investment activity, firms like Goldman Sachs and Merrill Lynch, had fallen by some 40 percent. And since the onset of the credit crisis, financial institutions in the U.S. have “written down” more than $230 billion in mortgage loans and other assets.3

The Federal Reserve has moved to head off financial panic and to stimulate growth. But these moves have aroused new fears in the still unsettled world financial markets. Why?

There are concerns about the Federal Reserve’s and U.S. Treasury’s ability to absorb what might amount to be hundreds of billions of dollars in bad investments. There are concerns about the ability of the Federal Reserve to pump huge amounts of funds into the U.S. financial system to keep it afloat. There are concerns that short-term and ad hoc efforts to slash interest rates and bail out financial firms may stoke inflation and further weaken the dollar.

This dimension of the crisis, the fragility of the dollar, looms large. It has everything to do with empire. The international role of the dollar—as the world’s leading currency for settling transactions, clearing debts, and holding foreign exchange reserves—is a linchpin of U.S. global supremacy. It is also a linchpin of the whole current global economic order.

But the dollar has been battered in international currency markets. In the last few months, it has sunk to new lows against the euro (the currency used in most of Western Europe), against the Japanese yen, and against the Swiss franc.

Now the dollar has declined considerably in value relative to other major currencies since 2000. But this has been cushioned, managed, and kept functional by the ability of the U.S. economy to attract huge amounts of foreign exchange and foreign capital into financial markets, especially to finance U.S. Treasury debt.

And one of the “disaster scenarios” most worrisome to U.S. imperialist policy makers is the danger of a global run on the dollar: private investors and central banks of other countries unloading their dollar holdings for stronger currencies.

D. A Reflection: Transparency and Anarchy

In early April, on the eve of a gathering of the world’s finance ministers and treasury officials, the International Monetary Fund issued a report on the financial damage caused by the collapse of the housing and credit markets. It warned that financial institutions worldwide might face losses approaching $1 trillion over the next two years.4 This calculation is far above what had been previously estimated. And according to some financial analysts, even this is a gross understatement.

The free market is extolled by bourgeois ideologues for its “transparency.” This is the idea that markets, prices, and interest rates convey all necessary information: about supply, efficiency, choice, and reward.

But one of the distinguishing features of this crisis is the incredible and pervasive lack of knowledge among lenders, borrowers, traders, and insurers about the quality and backing of what they borrow from others…and even of what they lend to others! Things are obscured, covered up, and very opaque.

* There is the anarchy of capitalism, as giant agglomerations of capital battle others for market share and profits, and pursue competitive strategies that have unforeseen effects on the larger system.

* There is the emergence of a newer banking system operating parallel to the older commercial banks. These are the so-called hedge funds, private equity firms, and investment banks. They move huge amounts of capital in and out of financial markets to take advantage of momentary and slight changes in bond prices, interest rates, and currency exchange rates. They borrow against assets that have a shadow existence, far removed from the actual production of value. They have led in creating new financial instruments, in which all kinds of loans of varying risk are bundled together into interest-yielding bonds and the like. And this newer banking system operates in a more unregulated environment than do the commercial banks.

* This is a highly competitive, turbo-charged financial world, where huge blocks of capital seek quick gains at the expense of others. In this setting, speculation, fraud, and deception become part of survival strategies. One example of this in the unfolding of the financial crisis: financial agencies that rate the risk of things like mortgage-backed securities earn higher fees for providing favorable ratings on these new “financial products.” So they lied and deceived investors about real risk. This led to mis-pricing and to baseless expectations of return on investments.

E. A Reflection: A House…Is Not Always a House

As we descend from the skyscrapers of finance to ground level, the human toll comes into clearer view. At the start of 2008, nearly 1.3 million homes in the U.S were in some phase of foreclosure. That works out to more than one in every 100 U.S. households. According to Moody’s Economy.com : “not since the Depression has a larger share of Americans owed more on their homes than they are worth.”5

Think about it. Something as basic and essential as shelter is commodified. A house becomes an investment; its purchase underwritten by tradable financial instruments; and the lure of homeownership then engulfed by the devastating trade winds of the market. And what happens? People’s savings are wiped out. Their creditworthiness is damaged if not destroyed. And many face the prospect of homelessness.

The problem is not that people don’t need houses. Nor is it that society doesn’t have the resources or knowledge to build houses. The problem is that capital stands as a barrier to meeting human need.

PART II: A SECOND CUT:

DEEPER CAUSES AND IMPLICATIONS

Where all this financial turmoil might lead cannot be predicted. A gigantic, speculative credit bubble has burst. Problems in U.S. lending markets and the U.S. banking system have brought on an economic slowdown in the U.S. This in turn is triggering a global slowdown. Consumer goods exporters of Asia that have relied heavily on trade with the U.S. are especially vulnerable. And so too are countries in Eastern Europe that have borrowed heavily to finance growth.

Here is one tiny snapshot of the fallout and pain from the financial crisis. The U.S. housing slump has led to the loss of some 100,000 construction jobs, many that had been filled by undocumented immigrants. That has dramatically slowed the growth of money sent back home by these workers. After nearly quadrupling to $24 billion in 2006 from $6.6 billion in 2000, these earnings sent home grew only 3 percent in 2007, the slowest rate of growth in 20 years.6 Families in Mexico have come to depend on these remittances for food and clothing and other basic essentials.

The buildup and collapse of this latest speculative bubble, and intensifying financial fragility that could lead to massive breakdown, are in fact outward expressions of deeper processes and transformations at work in the world capitalist economy.

We need to take a step back.

A. Globalization and Financialization

For the last 15 years, world capitalist expansion has pivoted on a particular international dynamic and structure. This has involved heightened financialization and parasitism in the advanced capitalist countries —with the United States at the epicenter of this process; and the fuller integration of low-cost, export-producing countries of the Third World into the world capitalist market —with China at the epicenter of this process.

The turning point in this process was the collapse of the social-imperialist Soviet Union in 1990-91. With the implosion of the Soviet bloc, the main geopolitical obstacle to U.S. imperialist freedom of action was removed. At the same time, and very much in connection with this, imperialist globalization accelerated. (This is analyzed in considerable depth in Notes on Political Economy: Our Analysis of the 1980s, Issues of Methodology, and the Current World Situation, 2000, RCP Publications.)

Over the last 15 years, a globally integrated cheap-labor manufacturing economy, with huge labor reserves from China, India, and other parts of the Third World, along with labor from the former Soviet bloc, has been forged. The globalization of production has had enormous effects on world accumulation: raising profitability for imperialist capital, acting to compress wages, and lowering inflationary pressures. The integration of cheap-labor manufacturing into world production is now so deep that in the U.S., fully half of imports (mostly consumer goods) come from the Third World.

A revealing statistic: a University of California study looked into who gains when an iPod manufactured by national firms in China is sold in America for $299. Only $4 stays in China with the firms that assemble the devices, while $160 goes to American companies that design, transport, and retail iPods.7

When we speak of capitalist accumulation, we are referring to the competitive production of surplus value (the source of profit) based on the exploitation of wage labor; and the investment and reinvestment of profit on an expanding, cost-cheapening, and technologically more productive basis.

When we speak of “financialization,” we are referring to three particular features of the larger structure of capitalist accumulation in this period of imperialist globalization: a) the growing political and economic power of the financial layers of the capitalist class; b) the vast expansion of financial activities and of financial services, like organizing and financing corporate takeovers, insuring investments against risk, creating new financial instruments, etc.—activities in which profit-making involves the siphoning, centralization, and reinvestment of surplus value through financial channels; and c) the increasing separation of finance from production.

This process of financialization has gone the furthest in the United States, and it is a major factor in U.S. imperialism’s ability to preserve and extend its dominance in international financial markets.8

Financialization is also a means through which wealth, and effective control over productive forces, is centralized by the imperialist countries—even as production has grown more geographically dispersed and increasingly carried out within subcontractural networks in the Third World.

Financialization involves efforts to squeeze out more “value” from already created value. One measure of this is that in 2006, the daily volume of trading in foreign exchange markets and in derivatives (financial instruments) added up to $11.4 trillion—which almost equals the annual value of global merchandise exports that year. In terms of the shifts in the structure of the U.S. economy, the financial sector’s share of total corporate profits has risen from 8 percent in 1950 to 31 percent last year.9

B. Financialization and Production

As far removed as finance may be from processes of production, and as elaborate and multi-layered as its operations have become, finance cannot break free of the sphere of production. Even as it objectively seeks to do so—and even as the disjuncture between the two spheres (production and finance) grows—it is the underlying conditions and profitability of production that set the overall conditions for the accumulation of capital.

Imperialism is a worldwide system of production and exchange. It is the structure of social production—it is the global production of surplus value based on exploitation of people—that is at the foundation of this whole system. And in relation to the production of surplus value, “financialization” is both parasitic and functional. It is parasitic in the sense that financialization drains value from production.

But financialization is functional to the workings of global capitalism in the sense that it facilitates the gathering of money capital into ever-larger agglomerations of capital and finds new profit-yielding channels in which to rapidly invest it…and just as quickly to withdraw it! Global capital faces all kinds of financial uncertainties and risks on its competitive global playing field as it moves through different channels, or circuits, of production. And the “risk-management” techniques provided by the global financial system are actually vital to the accumulation of capital, to the success of “risk-taking,” in the turbo-charged globalized economy.10 That’s why, for example, money jumps into Thai real estate markets one day, and pulls out and goes into ethanol production in Brazil the next… and then back to mortgage securities.

And there is something else: the inflows and outflows of short-term and speculative capital also act as a perverse means of imposing discipline on and restructuring capitals—a major manufacturing firm can be starved of credit or threatened with a leveraged buyout. And this kind of “financial discipline” has been imposed on whole countries in the Third World—aided, abetted, and orchestrated by the U.S.-dominated International Monetary Fund.

All this is part of the reason that financial instability is a constant feature of capitalism in its more globalized and financialized forms of existence.

Financialization and the globalization of production have been tightly bound up with each other. It can be put this way: there is a relationship between sweatshop labor in Guangdong province in China, the recycling of China’s export earnings into the U.S. Treasury and U.S. financial markets, and the credit-financed expansion in the U.S. of the last decade. Or, to put it more graphically, there is a link between the agony of superexploited labor in the bowels of the new industrial zones of the Third World, the feverish search for high and quick returns at the top of the financial pyramids, and the chaos of the housing markets with people losing their homes in the U.S.

This is an extreme concentration of the nature of world capitalism. This world is highly bound together by production, trade, and finance. The requirements of life (consumer goods) and the requirements of production (machines and raw materials, etc.) are socially produced, that is, they involve the collective and interconnected efforts of wage-laborers in factories, warehouses, and so forth. But this wealth, the technology and means of producing it, and knowledge itself—all this is privately controlled and deployed by a small capitalist class.

C. Barriers, Contradictions, and Shifting Tectonic Plates

What we are witnessing now is that a particular dynamic of growth, marked by intensified financialization, is generating new contradictions and new barriers to sustained accumulation.

The level of debt to economic output in the U.S. is at an all-time high. The financing of the trade and government deficits of U.S. imperialism (that is, providing credit for purchases of imports and having investors buy Treasury debt) depends on a steady and growing inflow of capital from abroad. But the weakening of the dollar and the emergence of competitor currencies, like the euro, increasingly threatens these mechanisms. And very crucial to this has been the process where dollars earned by countries like China through trade with the U.S., are then recycled back into the U.S. economy through purchase of Treasury bonds and other investments.

In the U.S., the financial sector is seriously strained and is a flashpoint of heightened global financial instability, if not breakdown, leading to a major economic slump.

Here we come to a basic point of this analysis: A financial crisis has broken out because of the severe imbalances built up between the financial system—and its expectations of future profits—and the accumulation of capital, that is, the structures and actual production of profit based on exploitation of wage-labor.

The imperialist state is intervening to head off further damage and to discipline and restructure the financial system. But the very complexity of the “financial packages” created during the speculative boom—with their bundled-up loans and long strings of finance—are producing new challenges for policy-makers. As one Yale economist put it, perhaps unintentionally echoing a phrase from Marx: “like the sorcerer’s apprentice, we have created things we do not understand and cannot easily control.”11

This explosive uncertainty is developing against a larger international canvas. Major shifts are taking place in the world capitalist economy. The European market recently eclipsed the U.S. market in size. China’s growing demand for raw materials to fuel its export economy is making it a new player in the scramble for resources and control over them. And China’s increasing importance as a supplier of capital to the U.S. is giving it new leverage. Russia is reemerging as a world imperialist player, owing in part to its vast energy reserves and rising oil and gas prices.

At the same time, and at this very moment of financial crisis, U.S. imperialism’s freedom of maneuver is severely hobbled—and this includes its ability to stimulate the economy through fiscal and monetary policy. The United States has never run such large current account deficits and no single country’s deficit has ever bulked as large relative to the global economy.

D. The Military Fix

Which brings us to one of the “dirty little secrets” of the financial crisis: the military needs and the military costs of empire…and “greater empire.”

There is a brute fact of imperialist accumulation. The whole imperialist system rests on the domination of vast swaths of the globe through savage force, with the U.S. military colossus playing a special role. The U.S. military helps “create the conditions” for U.S. domination, pro-U.S. client regimes in the Third World, and conditions for investment by U.S. corporations.

In the Bush era, U.S. imperialism has been attempting to parlay its military might into a new world order. This involves a restructuring of global political and production relations that will enable it to resolve or mitigate some of the problems and tensions it faces—and to lock in its global supremacy over rivals and potential rivals for decades to come.

The U.S. share of world production has declined to about 20 percent, down from 30 percent forty years ago. But U.S. imperialism is compensating for this by pressing its military advantage as sole imperialist “superpower” (since the collapse of the Soviet Union).

In a recent study, Chalmers Johnson has calculated that defense-related spending for fiscal 2008 will exceed $1 trillion for the first time in history. Leaving out the wars in Iraq and Afghanistan, defense spending has doubled since the mid-1990s.12

Militarization is also embedded in the U.S. economy. It is a key structural component of growth, scientific research, and technological prowess of U.S. imperialism. And because of its sheer size, it also plays a role in the attempts of the U.S. imperialist state to “manage” and stimulate the economy.

But the recent wave of militarization has put enormous financial strains on U.S. imperialism. It has produced huge deficits that cannot be sustained without the inflow of capital into the U.S. And the wars for “greater empire” are incurring astronomically greater costs than military and government planners had anticipated. Not least because of the setbacks and difficulties U.S. imperialism has encountered in Iraq and Afghanistan.

This is a sharp contradiction for U.S. imperialism—because in many ways it is staking the future of empire on these wars; but these wars have become more costly to wage. And it is the height of hypocrisy for Democrats to now blame the Iraq war for financial crisis—as they consistently voted for war-spending authorizations, to the tune of $500 billion.

PART III: CONCLUSION

This is a financial crisis of historic proportions. And like many other events in the world, this crisis points to the fundamental irrationality and cruelty of the system. It also shows the vulnerability of imperialism to sharp turns that could open up new possibilities for revolutionary advance.

But things unfold in complex, unpredictable, and historically conditioned ways. And as serious and potentially destabilizing as this crisis may become, it is also possible that U.S. imperialism could turn this crisis to its advantage.

We live in an age of “endless war” and environmental devastation. We live in an ever-more globalized capitalist system that thrives on the toil and agony of the great bulk of humanity but that cannot escape the anarchy that lies at its very foundations.

There is necessity and freedom for the imperialists. And so too for the people.

---

Footnotes

1. Quoted in Steven R. Weisman, “Financial Regulators Suggest Tighter Controls,” The New York Times, April 12, 2008. [back]

2. Allan Sloan, “On the Brink of Disaster,” Fortune, April 14, 2008, p. 82. A useful discussion of derivatives, hedge funds, and the like is found in “The Predators’ Ball Resumes: Financial Mania and Systemic Risk,” Interview with Damon Silvers, Multinational Monitor, May-June 2007. [back]

3. S. Tully, “What’s Wrong With Wall St. and How to Fix It,” Fortune, April 14, 2008, p. 72; Reed Abelson and Louise Story, “G.E. Earnings Drop, Raising Broader Fears,” The New York Times, April 12, 2008. [back]

4. Sean Farrell, “Financial turmoil could cost $1trn, warns IMF as global growth comes under threat,” Independent.co.uk, 9 April 2008. [back]

5. Data from RealityTrac.com, January 29, 2008; Moody’s Economy.com, February 21, 2008. [back]

6. The New York Times, January 24, 2008. [back]

7. Cited in Charlemagne, “Winners and losers,” The Economist, March 1, 2008, p. 56. [back]

8. Among informative studies of financialization, neoliberalism, and dollar hegemony are David Harvey, A Brief History of Neoliberalism (London: Oxford, 2005); Andrew Glyn, Capitalism Unleashed (London: Oxford, 2006); Kevin Phillips, American Theocracy (New York: Viking, 2006); Ramaa Vasudevan, “Finance, Imperialism, and the Hegemony of the Dollar,” Monthly Review, April 2008; and C.P. Chandrasekhar, “Continuity or Change? Finance Capital in Developing Countries a Decade after the Asian Crisis,” Economic and Political Weekly, December 15, 2007. [back]

9. See Chandrasekhar, “Continuity or Change,” pp. 37-38; The New York Times, December 11, 2007. [back]

10. On financialization as a means to contain financial disorder and to impose neoliberal discipline, see Christopher Rude, “The Role of Financial Discipline in Imperial Strategy,” in Leo Panitch and Colin Leys, eds., Socialist Register 2005: The Empire Reloaded (London: Merlin Press, 2004). [back]

11. David Dapice, “Bad Spell on Wall Street,” Policyinnovations.org, January 24, 2008. [back]

12. Chalmers Johnson, “Why the US has really gone broke,” mondediplo.com (English edition), February 5, 2008.  [back]

Wednesday, June 4, 2008

The Derivatives Market is Unwinding!

A couple of months ago, a financial analyst who sells derivatives told me that fears about a meltdown in the derivatives market were unfounded.

Yesterday, he told me - with a very worried look - "THE DERIVATIVES MARKET IS UNWINDING!"

What does this mean? What are derivatives and why should you care if the market is unwinding?

Well, it turns out that the reason that Bear Stearns was about to go belly-up before JP Morgan bought it is that it had held trillions of dollars in derivatives, which were about to go south. (The reason that JP Morgan was so eager to buy Bear Stearns is that it was on the other side of these derivative contracts -- if Bear Stearns had gone under, JP Morgan would have taken a huge hit. But the way the derivative agreements were drafted, a purchase by JP Morgan canceled the derivative contracts, so that JP Morgan didn't experience huge losses. That is probably why the Fed was so eager to broker - and fund - the shotgun marriage. JP Morgan is a much larger player, and if Bear's failure had caused the derivatives hit to JP Morgan, it probably would have rippled out to the whole financial system and potentially caused an instant depression).

In addition, the subprime prime loan crisis is intimately connected to the unwinding of the derivatives market. Specifically, loans were repackaged into derivatives called collateralized debt obligations (or "CDO's") and sold to both big and regional banks and investment companies worldwide. The CDO's were highly-leveraged -- many times the amount of the actual loans. When the subprime loan crisis hit, the high leverage magnified the fallout, and huge sums of CDO derivatives became essentially worthless.

Do you remember when wealthy Orange County, California, went bankrupt in 1994? Yup, that was because it had invested in bad derivatives.

And, according to a recent article by one of the world's top derivative insiders, the market for credit default swap ("CDS") derivatives is also unraveling.

And reported just today, Lehman Brothers is now on the edge, due to exposure to derivatives.

Derivatives are the Elephant in the Living Room

The subprime mortgage crisis is bad, and is hurting many people, and slowing the economy. High oil and food prices are bad, and are hurting many people, and bringing down the economy. But -- according to top insiders -- derivatives are the elephant in the room . . . the single largest threat to the U.S. and world economy.

One reason is that, according to Paul Volcker, the former chairman of the Federal Reserve, the entire modern financial system is based upon derivatives, and the financial system today is entirely different from the traditional American or global financial system because derivatives - a relatively new concept - now underly the entire fabric of the financial system. In short, many of the people who know the most about derivatives say that the current system is a house of cards built upon derivatives.

Moreover, as mentioned above, the subprime and derivatives crises are closely linked. Similarly, Britian's New Statesman newspaper links derivatives and rising food and commodity prices:

"This latest food emergency has developed in an incredibly short space of time - essentially over the past 18 months. The reason for food "shortages" is speculation in commodity futures following the collapse of the financial derivatives markets. Desperate for quick returns, dealers are taking trillions of dollars out of equities and mortgage bonds and ploughing them into food and raw materials. It's called the "commodities super-cycle" on Wall Street, and it is likely to cause starvation on an epic scale.

The rocketing price of wheat, soybeans, sugar, coffee - you name it - is a direct result of debt defaults that have caused financial panic in the west and encouraged investors to seek "stores of value". These range from gold and oil at one end to corn, cocoa and cattle at the other; speculators are even placing bets on water prices."

Hiding the Ball

And yet banks and financial houses have hidden their derivatives exposure off the balance sheets. No wonder almost no one understands derivatives:

"Not only [world's richest man] Warren Buffett, but Bond King Bill Gross, our Fed Chairman Ben Bernanke, the Treasury Secretary Henry Paulson and the rest of America's leaders can't 'figure out'" the derivatives market.

Indeed, the government may have actively helped to hide the the derivatives mess since at least 2006. For example, according to Business Week:

"President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations."

Former fed chairman Alan Greenspan has been a huge booster for and defender of derivatives since 1999 or before (and see this). Did you know that the same guy that pushed subprime loans has also aggressively pushed derivatives for many years?

And the other regulatory agencies and Congress have taken a totally hands-off approach towards derivatives.

How Big a Problem?

How big is the derivatives market? Worldwide, it is $596 TRILLION dollars *. The derivatives market dwarfs the real market for goods and services, and acts likes an unregulated black market.

As one writer put it:

"It’s all smoke and mirrors. The financial system has decoupled from the productive elements of the economy and is now beginning to show disturbing signs of instability."

And its not just the U.S. Derivatives salesmen have sold these babies all over the world. Because banks, financial institutions and governments world-wide have bought significant derivatives, the fall out will not be limited solely to the U.S. See this and this.

If the derivatives market is truly unwinding, as my investment advisor friend and some of the top industry insiders say, we could be in for a very bumpy ride.

For further information on derivatives, see these articles:

http://www.global-derivatives.com/index.php?option=com_content&task=view&id=185
http://en.wikipedia.org/wiki/Derivative_%28finance%29

http://www.prudentbear.com/index.php/BearsLairHome
http://www.globalresearch.ca/index.php?context=va&aid=9202

http://www.marketoracle.co.uk/Article4419.html
http://www.marketoracle.co.uk/Article1038.html
http://www.marketoracle.co.uk/Article4378.html
http://www.accountancyage.com/accountancyage/news/2218166/banks-fear-us5000bn-balance

http://www.globalresearch.ca/index.php?context=va&aid=8634
http://www.nytimes.com/2008/03/23/business/23how.html?_r=1&oref=slogin&ref=business&pagewanted=print
http://www.nytimes.com/2008/03/23/business/23regulate.html?pagewanted=2&th&emc=th
http://www.occ.treas.gov/ftp/release/2008-36a.pdf
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&date=20080519&id=8667647
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/17/cnlibor117.xml

* This is the "notional value". The actual amount of potential losses from a meltdown in the derivatives market is smaller, although still very large.

Posted by George Washington at 12:01 PM

The 'Mortgage Meltdown' Was No Accident

By Kai Wright, The Nation. Posted June 30, 2008.

How the mortgage industry stole black America's hard-won wealth.

http://www.alternet.org/workplace/89837/

 Research support for this article was provided by the Investigative Fund of The Nation Institute.

“They call it the 'American Dream' because you have to be asleep to believe it.” - George Carlin

Meanwhile...

No Bull

On Ethics, Deregulation and Financial Chaos

By William A. Cohn

US government policy has encouraged recklessness - most recently by taking extraordinary measures to privatize gains while socializing losses. As part of the agenda of its so-called ownership society (excepting ownership of responsibility by powerful bankers and insurers who fail) the govt. even sought to privatize public obligations - recall the Bush proposal to privatize social security. So why not play fast and loose if the rules are heads I win tails you lose?
http://www.informationclearinghouse.info/article20800.htm

===

You've Been “Shafted” (Again)

By Larry Dorshkind 

The ultimate tax obligation of your family figure is humongous? Just to give you a little sense of the scale, though, the present $9.5 trillion National Debt works out to be $38,000 per person (based on 250,000 Americans who can be expected to pay taxes). Therefore, for your 6-member family unit, your obligation for the current National Debt is $228,000. Continue

1. We need first to correct incentives for executives, reducing the scope for conflicts of interest and improving shareholder information about dilution in share value as a result of stock options. We should mitigate the incentives for excessive risk-taking and the short-term focus that has so long prevailed, for instance, by requiring bonuses to be paid on the basis of, say, five-year returns, rather than annual returns.

2. Secondly, we need to create a financial product safety commission, to make sure that products bought and sold by banks, pension funds, etc. are safe for "human consumption." Consenting adults should be given great freedom to do whatever they want, but that does not mean they should gamble with other people's money. Some may worry that this may stifle innovation. But that may be a good thing considering the kind of innovation we had -- attempting to subvert accounting and regulations. What we need is more innovation addressing the needs of ordinary Americans, so they can stay in their homes when economic conditions change.

3. We need to create a financial systems stability commission to take an overview of the entire financial system, recognizing the interrelations among the various parts, and to prevent the excessive systemic leveraging that we have just experienced.

4. We need to impose other regulations to improve the safety and soundness of our financial system, such as "speed bumps" to limit borrowing. Historically, rapid expansion of lending has been responsible for a large fraction of crises and this crisis is no exception.

5. We need better consumer protection laws, including laws that prevent predatory lending.

6. We need better competition laws. The financial institutions have been able to prey on consumers through credit cards partly because of the absence of competition. But even more importantly, we should not be in situations where a firm is "too big to fail." If it is that big, it should be broken up.

These reforms will not guarantee that we will not have another crisis. The ingenuity of those in the financial markets is impressive. Eventually, they will figure out how to circumvent whatever regulations are imposed. But these reforms will make another crisis of this kind less likely, and, should it occur, make it less severe than it otherwise would be. - Joseph E. Stiglitz

Joseph E. Stiglitz, professor at Columbia University, was awarded the Nobel Prize in Economics in 2001 for his work on the economics of information and was on the climate change panel that shared the Nobel Peace Prize in 2008. Stiglitz, a supporter of Barack Obama, was a member and later chairman of the Council of Economic Advisers during the Clinton administration before joining the World Bank as chief economist and senior vice president. He is the co-author with Linda Bilmes of the "Three Trillion Dollar War: The True Costs of the Iraq Conflict."

DISASTER CAPITALISM ANYONE ;) 

http://www.naomiklein.org/main